Fifth Money Laundering Directive and Trusts

27 February 2020
On 24 January, HMRC and HM Treasury published a technical consultation on the Fifth Money Laundering Directive and Trust Registration Service*.

plant in a jarThe purpose of the consultation is to establish how the trust registration service should be expanded from its current remit under the Fourth Money Laundering Directive to meet the requirements of the Fifth Money Laundering Directive in a proportionate manner.

Exemption for protection trusts nearly there, but not quite

The good news is that HMT have proposed that trusts used with pure protection plans are to be exempted, accepting that registration would be disproportionate to the risk of money laundering or terrorist financing activity. However, looking at the proposed legislation the exemption is for ‘a trust of a life insurance policy or retirement policy paying out only on the death, terminal illness or permanent disablement of the person assured’.  As drafted this therefore only extends to plans that pay out on death, terminal illness or total permanent disability. If that were the case, there would still be a problem for split trusts used for life or critical illness cover or menu plans that include income protection. It also means that older whole of life policies that can acquire a surrender value may not be covered leaving a group of policyholders with long standing trusts with a need to register their trust.

This will hopefully be addressed as part of the consultation. It most likely just reflects a lack of clarity about the details of the full scope of pure protection plans and an appreciation of the design of older types of policy where the risk of money laundering is also small. But it does mean as an industry we needed to reply by 21 February, with an appropriate way to fix this to include 'critical illness' and 'serious illness', probably by using the ICOBS definition, and older regular premium whole of life policies that can acquire a surrender value and so do not fall under ICOBS.

Why do we need an exemption?

Without an exemption for trusts of protection plans, all new trusts created on or after 10 March 2020 would have to be registered within 30 days of the trust creation or by 10 March 2022 whichever is later.  Any trust already in existence would have to be registered by 10 March 2022.  In the context of business protection this would mean all relevant life policy trusts and any plans written under a business trust would need to be registered.  If there is an exemption but it isn’t extended to include pure protection plans with benefits payable other than on death, terminal illness or total permanent disability there will be a two tier system where some plans are exempt and some are not. This is likely to lead to confusion amongst policyholders and their trustees as to which trusts need to be registered and would be disproportionate to the risk such policies present for money laundering.

The information that would need to be provided is also quite detailed. For each settlor, trustees or beneficiary (including anyone named within a letter of wishes) they would need to supply the following:

  • Name
  • Month and year of birth
  • Country of residence of beneficial owner
  • Nationality of beneficial owner
  • Nature and extent of the beneficial interest held

(The nature of the beneficial interest being whether that person is a settlor, trustee or beneficiary. The extent giving the context of that beneficial interest. For example, one of three trustees for the period in question.)

Where the beneficial owner is a corporate or other legal entity it is proposed that the following will be provided:

  • The legal entity’s corporate or firm name
  • The registered or principal office of the legal entity
  • The nature of the entity’s role in relation to the trust

Once registered the trustees would have 30 days from when they are aware of any changes to update the register.

This is quite an onerous responsibility for the trustees who will generally be ordinary lay persons and therefore unlikely to be aware of their obligations. In most cases trustees of protection plans wouldn’t need to take any action under the trust until such time as there’s a claim on the policy. Whilst the trust may still need to be registered after a claim if it carries a tax liability, when very few incur a liability and the risk of money laundering is low, asking that every trust be registered would be a disproportionate remedy.  The proposed exemption is therefore welcome but we need to ensure it is clear which trusts do and which trust don’t need to be registered.

*Download the Technical Consultation Document for the Fifth Money Laundering Directive and Trust Registration Service



About the author

Ian Smart

Product Architect

Ian has worked in financial services since 1984 and has provided technical support and been involved in product development since 1992. He joined Royal London in 2001, initially as technical product manager for Bright Grey, before becoming head of product development & technical support for both Bright Grey and Scottish Provident and latterly product architect for Royal London.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.